What a Pawn Shop Is & How They Work

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There’s more than meets the eye in a pawn shop … unless you’re a regular viewer of the reality series “Pawn Stars,” in which case you’ve already seen what’s behind the curtain and know what a pawn shop is, and how it works.

You walk into a pawn shop for one of three reasons – to buy something, to sell something or to pawn something. Not all of those possibilities, though, make the same financial sense from the consumer’s perspective. Pawning an item or selling it outright in a pawn shop can put some quick money in your pocket, but both of those transactions come with a cost.

The first function of a pawn shop that comes to mind – pawning an item for cash – likely is the costliest. You take something you own into the shop and use it as collateral for a short-term cash loan at a very high interest rate. You ‘pawn’ your item. You hand over a ring, or an electric drill, or a guitar or anything else that might be of some value, and you walk away with a fistful o’ dollars.

Then, assuming you repay the loan – plus the interest and fees – in the next few weeks, the pawnbroker returns your property.

The other two reasons to do business with a pawn shop are more straightforward. You can sell the pawnbroker your item and be done with the deal quickly. You probably won’t get as much cash for it as you could if you sold it online, but at least you got some badly-needed cash.

The final reason is the best one for visiting a pawn shop: It’s a good place to hunt for retail bargains. You can shop for what others have sold or have forfeited because they didn’t pay back a loan and find a deal not available elsewhere.

Pawn Shop Regulations

 A pawn shop isn’t a bank. It isn’t a credit union. It isn’t a savings and loan association or a brokerage firm or a mortgage company. But it does provide loans to consumers (you!) and charges interest on those loans, so it is subject to the same federal laws as  other financial institutions, including :

  • The Patriot Act, which requires the pawnbroker to verify the identity of the borrower.
  • The Equal Credit Opportunity Act, which prohibits a pawnbroker from discriminating against a borrower on the basis of age, gender, race, national origin, religious preference, marital status and other factors.
  • The TruthinLending Act, which requires a pawnbroker to disclose the loan terms.

Every state and municipality applies its own laws to regulate pawn shops, too. In most places pawn shops must be licensed. If you’re about to do business in one, it’s a good idea – no, a great idea — to check on the status of its license.

Other local pawn shop regulations should give you some assurance that a standard of record-keeping is in place and that the pawnbroker won’t loan money to anyone underage. There usually are requirements, too, about the ticket you’re given for the property you are pawning. It should include:

  • an accurate description (including a model number and serial number if available) of the goods you’ve pawned.
  • your name, address and date of birth.
  • the date of the transaction.
  • the type of ID you provided.
  • the amount of cash the pawnbroker advanced you.
  • when the amount (plus interest) is due back to the pawn shop.

By the way, don’t lose that ticket!

Most pawn shops are required to report the merchandise they acquired – and from whom they acquired it — to local law enforcement on a daily basis. Those reports include much of the personal information about a borrower that can’t be used as a basis for discrimination under the Equal Credit Opportunity Act. So, a customer’s privacy might be more at risk in a pawn shop.

That requirement allows stolen property to be identified. Anything found to be stolen will be returned to the rightful owner. The pawnbroker could be charged with receiving stolen merchandise if a stolen item hasn’t been included on those daily police reports.

Buying Goods at a Pawn Shop

Some pawn shops specialize in certain kinds of merchandise, but sell pretty much anything under the sun that might turn a profit..

This advice won’t stun you, but you should shop at a pawn shop the same way you shop for an appliance or a necklace or a table saw: Do the research. It’s just as easy to overpay at a pawn shop as it is at a mechanic’s shop or a department store, so know the value of the item you’re buying, before you agree to a purchase price.

The key words in that last sentence are “agree to a purchase price,” because the dollar amount on a pawn shop sticker is rarely etched in stone. Haggle. Negotiate. But keep in mind that pawnbrokers negotiate all the time. They know what they paid for the item; you don’t. It’s easy for them to calculate their profit margin as they bargain with you.

And for peace of mind, make sure to check for a return policy and/or a guarantee of authenticity.

If you can avoid it, don’t plan to use a credit card for a pawn shop purchase. A cash transaction should help you stick to your limit, and the prospect of cash might persuade the pawnbroker to come a little closer to your price. Plus, you won’t run up any extra credit card debt.

If you play your cards right, you can walk out of a pawn shop with something you need or want, and feel good about the transaction. It’ll be a used item, but you won’t have paid anywhere close to what it would have cost new.

Selling Goods at a Pawn Shop

When you bring in an item to sell or pawn for a loan, the pawnbroker will already have an idea of its market value or be able to determine its value with a quick check of his resources at hand – an appraiser, or online sites such as eBay, Craigslist, Amazon or UsedPrice.com.

This is a good time to point out that a pawn shop is a business and a pawnbroker is in it to make a profit.

The pawnbroker will offer you a price somewhere considerably below that market value to acquire your item, and then attempt to re-sell it at a higher price than he or she paid you for it. (Otherwise, why buy it from you? That’s one of the ways a pawn shop succeeds.) You’ll get some quick cash in the transaction, but chances are it won’t match the good’s actual market value.

One way to close the gap between the market value and the price you get for selling the item at a pawn shop is to consult the same resources the pawnbroker uses. If you’ve checked eBay or Craigslist or UsedPrice.com ahead of time for similar items, then both you and the pawnbroker have an idea about what your property is worth. That should help when the negotiating begins.

And one other rule of thumb: Keep it clean. Tidy up what you’re trying to sell. Make it look as close to new as possible.

Pawn Shop Loans

One of the advantages of a pawn shop loan is that all you need is a government-issued ID (such as a driver’s license) and a piece of personal property that a pawnbroker determines has some value. You don’t have to go through a credit check, and you don’t need a co-signer.

The transaction can be done quickly, and you can walk out of the shop with a pawn ticket (again, keep it somewhere safe; you’ll need it to reclaim your item) and some cash in hand. How much cash depends on the value of the item you’ve left as collateral, but the average pawn shop loan is $150, according to the National Pawnbrokers Association.

Here’s what to expect from how pawn shops determine the value of your property, and thus the amount of the loan you’ll be offered. The pawnbroker generally figures to be able to sell the item for about 60% of its value if it was new. So that $400 guitar you bought new and are now trying to pawn will have a market value to the pawn shop of, say, $240. The loan you’ll be offered will be approximately one-third of that estimated current market value, meaning about $80. (When fees and interest are added, you’ll pay back more than that to retrieve the guitar.)

As in a straight sale of an item to a pawnbroker, you’ll end up with considerably less money than the item is actually worth.

Most pawn shop loans require that you pay the loan back within 30 days or else the item you used to secure it becomes the property of the pawn shop. In many cases, that 30-day time frame can be extended for a month or two, but extensions often mean the terms of the loan change. The interest rate and fees you’re being charged can increase.

If you can’t, or don’t, repay the loan, your only penalty is the loss of the property you pawned. There are no consequences for your credit score.

The deal works for the pawn shop in that it either gets back the money it loaned you with interest, or – if you default — it can offer the item you used for collateral for sale at a higher price.

Things You Can Pawn for a Loan

Anything that has some value can be pawned, but some personal property will interest a pawnbroker more than others. Musical instruments, for example, are easy to resell, maybe because parents always seem to be in the market to buy them for their kids. Electronics, including laptop computers and gaming consoles, are popular. And, of course, jewelry – gold jewelry, in particular – almost always intrigues a pawnbroker.

If what you’re trying to sell are antiques, all the better. As they get older, they often become more valuable.

Other items that show up regularly as collateral in pawn shop loans:

  • Sporting goods
  • Watches
  • Lawn equipment
  • Clothing
  • Tools
  • Speakers
  • Smart phones
  • Bicycles
  • Firearms (though firearm transactions are subject to greater regulation and scrutiny)

Be Mindful of Pawn Shop Loan Interest Rates and Fees

 Every state regulates pawn shop loan interest rates differently, so how much you’ll be paying back will vary depending on where you live. The maximum pawn shop loan interest rate allowed in New York, for example, is 4%per month. But in Florida, it’s 25%per month.

One way to think about the cost of your loan is to convert that per-month rate into an annual percentage rate (APR). To do that, just multiply the interest rate by 12.

So, if your pawn shop loan comes with a 10%per month interest rate, that’s a 120%APR or annual rate. And if that sounds like a lot, well, it could be worse. Texas allows its pawn shops to charge up to 240%APR. Interest rates like that swallow up your money in a hurry.

Let’s go back to that $80 you took as a loan for the guitar you left as collateral. With 10% interest on a 30-day loan, which isn’t unusual, you’d be expected to pay the pawn shop $88 –plus finance charges, storage fees, insurance, etc. — to retrieve your six-string at the end of the month.

Because of those interest rates and fees as well as the speed and ease with which they can be obtained, pawn shop loans are similar to title loans or payday loans. But those other two options generally are even costlier.

If at all possible, any of those arrangements are types of loans to avoid. But if it can’t be avoided, a pawn shop loan is the best of those three options. In any case, it’s always a good idea to know exactly what the terms of your loan are before you sign on the dotted line.

Should I Take Out a Pawn Shop Loan?

Because pawn shop loans are easy to obtain, they can be a short-term solution when you need cash in a hurry. But you should be sure you’re comfortable with your ability to repay the pawnbroker in the time frame allowed, including the costly interest and fees attached to the loan. Otherwise, at the end of the 30-day loan period, you’ll have forfeited whatever item you used as collateral and likely still be in need of cash.

That sounds like a deeper hole than the one you were in when you took the loan.

To help you decide if a pawn shop loan is a good idea, here are some of the pros and cons.


  • It’s fast. It usually means same-day cash.
  • It requires very little paperwork or an elaborate application process.
  • It can be a solution for immediate needs, such as emergencies, especially when a conventional loan isn’t an option.
  • It doesn’t require a solid credit score, and a default on the loan won’t negatively affect your credit score.
  • If it can’t be, or isn’t, paid off, the pawn shop won’t send a debt collector after the borrower or file a lawsuit.


  • It requires prompt repayment, usually within 30 days.
  • It will be for only a fraction of the value of the item you’ve pawned.
  • It comes with very costly interest rates and fees.
  • If it isn’t repaid, the pawn shop keeps the item that was used as collateral.

Pawn Shop Loan Alternatives

Pawn shop loans, along with payday loans and title loans, are often considered predatory transactions because the high interest rates and short-term repayment demands can take advantage of an unsuspecting borrower.

They can satisfy a specific need for immediate cash; but if that need isn’t absolutely urgent, a pawn shop loan probably isn’t the best way to right your sinking debt ship.

That’s true especially because you have other moves you can make, including:

  • Personal Loans – If you have a qualified credit score, banks, online lenders and credit unions will loan you up to $3,000 without asking for collateral.
  • Bill Payment Assistance – Especially during the ongoing pandemic, there are a number COVID-19 debt relief programs available to provide help.
  • Debt Management Programs – With the help of a nonprofit credit counseling agency, you can put together an affordable budget and a payment schedule to address your debt.
  • Small Loans – After a credit check, some banks will do these for their existing customers, at a more affordable interest rate than a pawn shop loan will require.
  • No-Interest Payroll Advance – Look for apps that will provide a two-day advance on your paycheck. Some come without interest or fees.

Talk to a Credit Counselor for Debt Help and Financial Assistance

All those options might seem like too much to absorb, but there is help available to sort through them.  If the state of your cash-flow and the size of your debt are dire enough to have you considering turning over some of your prized possessions to a pawn shop, it makes sense to connect with a nonprofit credit counseling agency before you do.

A consultation comes with no obligation, and a counselor can discuss with you the best debt relief options that apply to your specific financial issues. If you’re in an immediate cash-flow emergency, your counselor can help you identify the financial assistance programs for which you qualify to get you through it.

About The Author

Michael Knisley

Michael Knisley writes about managing your personal finances for InCharge Debt Solutions. He was an assistant professor on the faculty at the prestigious University of Missouri School of Journalism and has more than 40 years of experience editing and writing about business, sports and the spectrum of issues affecting consumers and fans. During his career, Michael has won awards from the New York Press Club, the Online News Association, the Military Reporters and Editors Association, the Associated Press Sports Editors and the Sports Emmys.


  1. USLegal, Inc. (ND) Pawnshops Law and Legal Definition. Retrieved from https://definitions.uslegal.com/p/pawnshops/
  2. National Pawnbrokers Association. (ND) What is a pawn transaction? Retrieved from https://www.nationalpawnbrokers.org/assets/2020/09/MediaFactsAboutPawn-3.pdf